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Completed Application 105 South Fifth Avenue Suite 513 Minneapolis, MN 55401 Tel: 612-252-9070 Fax: 612-252-9077 www.landform.net Landform®, SensiblyGreen® and Site to Finish® are registered service marks of Landform Professional Services, LLC. VIA E-MAIL August 15, 2017 Adam Flaherty, CPA City Administrator & Finance Director City of Otsego 13400 90th Street NE Otsego, MN 55330 RE: Application for Tax Increment Financing (TIF) Otsego Apartments, LLC/ Riverbend North Dear Adam: On behalf of Otsego Apartments, LLC we are pleased to submit the attached application for TIF assistance for the Riverbend North project. We look forward to discussing it with the Otsego City Council at the August 28th meeting. The application proposes two possible alternatives for a TIF district: a Redevelopment District or a Housing District. The primary purpose of the public financing is to assist with the elimination of the private waste water treatment facility (WWTF) and the connection of new and existing development to the municipal sewer system, to maintain affordable housing in the Riverbend Mobile Home park, and potentially create additional affordable units. This project is feasible without tax increment financing, but only if the new Riverbend North development utilizes the existing WWTF. The cost to connect to the municipal system and the desire to eliminate the WWTF entirely makes the project infeasible without assistance. In addition to the City’s application form, the attached materials include a revised Concept Plan Exhibit, Project Pro-Forma, Legal Description of the site, and a letter from the County Assessor. The required $5,000 application fee will be delivered separately. Please contact me at 612-638-0250 or by email at DLazan@landform.net if there are any questions about these materials. Sincerely, Landform Darren B. Lazan, RLA, President COPY: Casey Darkenwald ENCL: Page 1 of 7 ATTACHMENT A: FORM REQUEST FOR FINANCIAL ASSISTANCE FORM CITY OF OTSEGO AND OTSEGO ECONOMIC DEVELOPMENT AUTHORITY REQUEST FOR FINANCIAL ASSISTANCE TAX INCREMENT FINANCING (TIF) OR TAX ABATEMENT FORM FOR Otsego Apartments, LLC Riverbend North NAME OF APPLICANT Page 2 of 7 CITY OF OTSEGO REQUEST FOR FINANCIAL ASSISTANCE FORM REQUIRED INFORMATION 1. Provide a brief project description Background—In 2014, the City of Otsego approved a PUD concept plan for the Riverbend North property. The plan showed apartments and storage uses, and two commercial sites. In May of 2017, Darkenwald Corporation submitted an application to amend the Riverbend North PUD. The new concept plan includes apartments (192 units) mini-storage (21,400 sq. ft.) a site for a future retail building (5,000 sq. ft.) all located on a private drive extended from River Road. The plan assumes sewer service from the existing Riverbend Wastewater Treatment Facility (WWTF), which also serves the Riverbend Mobile Home Park located directly to the south of the site. Engineering studies have shown that the WWTP has sufficient capacity and can continue to serve the both the new development and the mobile home park for many years in the future with maintenance and reasonable improvements. The revised PUD application is currently in process with Otsego’s Planning Commission, which has tabled the application to its September 18th, 2017 meeting. The primary issue with the concept plan is the continued use of the Riverbend WWTF for the new development and for the mobile home park. City staff has stated their opposition to any project that does not connect to the city’s wastewater treatment system. Even if the new development connects to the city system, there are objections to the concept plan which must accommodate the continuation of the WWTP for the use of the mobile home park, and to the amount of commercial uses proposed for the site. Revised Concept Plan—In response to the discussions with staff, a revised concept plan (attached) has been prepared. The revised plan shows 164 apartment units, mini-storage (23,652 sq. ft.) and two sites for commercial buildings totaling 15,000 sq. ft. The apartment building would be the first phase of development. The project pro-forma covers the apartments only, as the timing of construction of the commercial uses is not known and they are considered more speculative. It shows that this project is feasible without any assistance from the City, but only if it uses the private WWTP. The cost of connecting to the city’s system would be (for the apartments alone) $1,567,433. This does not include city connection and access fees of $1,219,712 (128 RECs) for the Riverbend Mobile Home Park and the cost of decommissioning the WWTP (estimated at $150,000.) TIF Request—TIF assistance is requested to cover the cost of connecting Riverbend North to the city sewer system. Two options for TIF should be considered: a Housing District (which would require 20% of apartment units to meet affordability requirements) or a Redevelopment District (which would require a finding of blight, which may be met by the presence of the WWTP and some older storage buildings on the site.) The “gap” to be filled by TIF assistance for a Housing District would be approximately $3,498,135. The “gap” for a Redevelopment District would be $1,772,967; less, because the Housing District would require a reduction in rents to meet the affordability requirement. Neither scenario provides sufficient revenue to pay the sewer connection and access fees for the Riverbend Mobile Home Park. We request that the city consider initially waiving those fees in order to add the park as a customer to the municipal system and to preserve the affordable housing it provides. When the commercial components of the project are developed, they would generate additional tax increment that could be used to recover these costs. Page 3 of 7 2. Provide business information Business Name: Otsego Apartments, LLC Address: 7355 River Road NE Otsego, MN 5330 Telephone: 763.441.3700 Contact Name: Casey Darkenwald 3. Provide brief description of the business Rental apartments; future commercial and mini-storage 4. Provide information on the present ownership of the site Name: Darkenwald’s Riverbend Wastewater Facility Company LLP Address: 7355 River Road NE Otsego, MN 5330 Phone Number: 763.441.3700 Contact Name: Casey Darkenwald 5. Provide information on the proposed project (apartments only) Building square footage: 54,000 sq. ft. Size of property: 7.4 acres of 13.1-acre site Description of building: 4-story apartment building, 164 units averaging 960 sq. Materials and other additional relevant building information: 442 parking stalls (2.5 per unit), 347 surface stalls and 95 garage or tuck-under stalls 6. Provide total estimated project costs Land Acquisition $ 2,100,000 Construction $ 17,923,780 Financing Costs $ 430,920 Professional Fees $ 1,077,300 Total $_ 21,546,000 7. Project Costs: List and describe in detail by item the amount and purpose for which financing (either tax increment financing or tax abatement financing) is being requested See attached Pro-Forma. The primary purpose of the public financing is to assist with the elimination of the private WWTF and the connection of new and existing development to the municipal sewer system, to maintain affordable housing in the Riverbend Mobile Home park, and potentially create additional affordable units through a Housing TIF district. 8. State specific reasons why the use of tax increment financing or tax abatement assistance is necessary for the project (the “but for” test) The project is feasible without tax increment financing, but only if the new Riverbend North development utilizes the existing WWTF. The cost to connect to the municipal system and the desire to eliminate the WWTF entirely makes the project infeasible without assistance. Page 4 of 7 9. Provide market value information Current market value (from Wright County Assessor): $342,200 Proposed market value at completion: $18,047,865 (Housing District) or $19,923,033 (Redevelopment District) 10. Provide real estate property tax information Existing real estate taxes of property: $5,544 Estimated real estate taxes of property upon completion: From Pro-Forma: $225,598 (Housing District) or $249,038 (Redevelopment District) Per County Assessor (8/15/17): $233,700 11. Provide source of financing information Housing TIF District Redevelopment TIF District Equity $4,309,300 $4,309,300 Bank Loan $14,088,378 $15,641,029 Tax Increment Financing $3,148,322 $1,595,671 Total $21,546,000 $21,546,000 12. Provide name and address of architect, engineer, and general contractor for the project Architect: Graeme Mahler, AIA Principal Mahler and Associates Architecture 325 33rd Ave N #107 St Cloud, MN 56303 Tel: 320.257.2724 Fax: 320.257.2725 gmahler@mahlerarchitecture.com Planners & Engineers: Darren Lazan, RLA, President Landform Professional Services 105 South Fifth Avenue, Suite 513 Minneapolis, MN 55401 612.638.0250 DLazan@landform.net Multi-Family Development Consultant: Jim Illies, CPM, Principal INH Properties 175 7th Ave South Waite Park, MN 56387 320.252.2000 jimjr@inhproperties.com Page 5 of 7 13. Provide project construction schedule Estimated construction start date: Spring, 2018 Estimated construction completion date: If phased project: _____2018_____ Year ____75___ % Complete _____2019_____ Year ____100__ % Complete 14. Describe how the project will meet one or more of the following City of Otsego or Otsego Economic Development Authority goals (in addition to increasing tax base). Please provide measurable, specific, and tangible goals. Goals may include the following: increased wages; creation of jobs that pay wages adequate to support households; and/or job retention where job loss is specific and demonstrable; and/or development or redevelopment projects that are consistent with the City of Otsego’s goals and objectives. • The development will provide quality, market-rate and affordable multi-family rental housing for employees of Otsego businesses. • The development will help to create demand for goods and services from the new residents, and support the city’s goals for retail development. • Removal of the Riverbend Wastewater Treatment Plant will: o Benefit the City of Otsego’s wastewater treatment operations by contributing connection and access fees from the new development, and adding new customers to the system from the new development and the Riverbend Mobile Home Park. o Eliminate the need to rehabilitate and further invest in maintenance of the private WWTF. o Eliminate the City’s concern that it could become responsible for the operation and maintenance of a private WWTF. o Eliminate the City’s concerns about possible any nuisances (odor or noise) from the private WWTF. • City assistance will make it financially feasible to extend public sewer service to the Riverbend Mobile Home Park, helping to preserve approximately 200 units of affordable housing in the community. • Future phases of the development will create two commercial sites for future economic development. • Future phases of the development will replace existing storage uses with a secure, attractive mini-storage facility in a location convenient to the surrounding residential area. • Development of the project will provide short-term construction-related jobs. 15. Provide a reference from another municipality (if applicable) Development team has most recently worked with the City of Alexandria and City of Cambridge Page 6 of 7 16. Provides names of any other municipalities wherein the applicant, or other corporations the applicant has been involved with, has completed developments within the last five years Stan Gustafson, Economic Development Director City of Cambridge 300 Third Avenue NE Cambridge, MN 55008 Direct 763.552.3209 sgustafson@ci.cambridge.mn.us Jason Murray, Executive Director Alexandria Area Economic Development Commission 610 Fillmore Street, Suite 1 Alexandria, MN 57308 Direct 320.763.4545 jmurray@rea-alp.com 17. Provide the following required supplemental information: - Project Pro Formas (one showing with assistance and one without assistance) - Legal description of the property - Application fee of $5,000 payable to the City of Otsego - Site plan SUBJECTIVE ANALYSIS In addition to the required information from above (items 1-19), the following information is requested and will be considered as part of the application approval process: 18. Provide number of years in business 48 19. Provide number of years located in the City of Otsego (if applicable) 40 + years 20. Describe potential for business growth or future development The apartments will help to provide a market for the future phases (retail/commercial and mini-storage) of this project. 21. Explain whether the building will be owner-occupied (Yes/No) No 22. If rental space, provide the targeted retail rates Monthly Rent Number of Units Apartment Rents, Market Rate 1 Bedroom $ 1,102 82 1 Bedroom/Den $ 1,173 25 2 Bedroom $ 1,383 41 3 Bedroom $ 1,603 23 164 Apartment Rents, Affordable (20% of units, Housing District) 1 Bedroom $ 801 11 1 Bedroom/Den 2 Bedroom $ 960 11 3 Bedroom $1,110 11 33 Page 7 of 7 23. If building is non-owner occupied, explain whether the lessee will be required to capitalize this lease Apartments will have annual leases. 24. Provide land costs per acre or square foot $2,100,000 / 7.40 acres = $283,784 per acre 25. Describe the location of proposed facility within Otsego Southeast corner of Highway 101 and County Road 42 (River Road) 26. Describe the general quality of the development Development will meet or exceed city standards. Detailed plans of exterior materials are not yet available, but will be masonry block or concrete base with a type of horizontal lap siding above. Materials will comply with Section 20-17-4.A.3 of the Zoning Ordinance. 27. Provide the size of parcel being developed 7.40 acres Phase 1 apartments, 13.1 acres total site area 28. Provide the projected building cost per square foot Apartment average cost per unit = $130,986 29. Additional comments T R A S H E N C L O S U R E P A R K 54,000 S.F.STORMWATERPOND S T O R M W A T E R P O N D M I N I - S T O R A G E C . I . C . - U N I T 1 C . I . C . - U N I T 2 C . I . C . - C O M M O N E L E M E N T C.I.C.-FUTUREREAL ESTATE F U L L A C C E S S I N T E R S E C T I O N R I G H T - I N / R I G H T - O U T I N T E R S E C T I O N F U T U R E D R I V E 1 . 0 2 A C . C O M M E R C I A L 0 . 7 8 A C . C O M M E R C I A L 7 3 U N I T S 2 . 1 5 A C . C O M M E R C I A L 7.40 AC.RESIDENTIAL R E T A I L 7 , 5 0 0 S . F . RETA I L 7,500 S.F. E X I S T I N G O F F I C E APPART M E N T 164 UNITS N O R T H 0 1 5 0 N o t e s A P A R T M E N T S : B U I L D I N G F O O T P R I N T 5 4 , 0 0 0 S . F . 9 6 0 S . F . U N I T S ( 4 S T Y B L D G ) 1 6 4 U N I T S 2 . 5 S T A L L S / U N I T P E R C O D E 4 1 0 S T A L L S S U R F A C E S T A L L S 3 4 7 G A R A G E S T A L L S 4 8 T U C K U N D E R S T A L L S 4 7 P R O V I D E D S T A L L S 4 4 2 M I N I - S T O R A G E : B U I L D I N G F O O T P R I N T 2 3 , 6 5 2 S . F . 3 2 4 S . F U N I T S ( 2 7 F T x 1 2 F T ) 7 3 U N I T S L a n d f o r m a n d S i t e t o F i n i s h a r e r e g i s t e r e d s e r v i c e m a r k s o f L a n d f o r m P r o f e s s i o n a l S e r v i c e s , L L C . R R in collaboration with: D A R K E N W A L D x  O t s e g o , M N x  0 8 . 0 3 . 2 0 1 7 C O N C E P T P L A N E X H I B I T R E T A I L : B U I L D I N G F O O T P R I N T 1 5 , 0 0 0 S . F . 1 5 0 0 S . F U N I T S ( 6 0 F T x 2 5 F T ) 1 0 U N I T S 1 S T A L L / 2 5 0 S . F . P E R C O D E 6 0 S T A L L S P R O V I D E D S T A L L S 7 0 S T A L L S Summary Pro-Forma Application for TIF Avg Square Foot per Apt. 958 Description $/month $/unit % of GI Annual $ $/SF - Rent 1.30$ Apartments $/SF - Rent # of Units 164 Preserve at Commerce 1.17$ Gross Income # of TU Garage Units 47 Skye at Arbor Lakes 1.41$ Apartment Rents 1,246 14,954 96.1%2,459,835 $/garage stall/month 65.00$ Granite Shores 1.53$ TU Garages 65 780 1.4%36,660 # of Garage Units 48 Residence at the COR 1.44$ Garages 48 576 1.5%37,440 $/garage stall/month 45.00$ The Birchwood 1.39$ Miscellaneous Income 12.50 150 1.0%24,674 Misc. Income/Unit 150.00$ Evans Meadows 1.28$ Total Gross Income 1,296 15,555 98.5%2,558,609 Vacany Rate 7.00%Arbor Glen 1.18$ (Vacancy and Credit Loss) 90.74 1,089 7.00%179,103 Affordable 140,638 Average Cost Per Unit 130,986$ Effective Income 1,205 14,466 92%2,238,868 Total Cost 21,546,000$ Average 1.34$ Less: Operating Expenses - Loans 17,236,800$ Utilities 80 964 6.2%158,634 LTC 80.00% Salaries and Wages 88 1,058 6.8%173,985 Equity Required 4,309,200$ Administrative/Advertising 18 218 1.4%35,821 Maintenance and Repair 38 451 2.9%74,200 Loan Amount 17,236,800$ Grounds Maintenance 10 124 0.8%20,469 INT 4.75% Property Tax 124 1,493 9.6%245,626 AMORT 30 Rent Adjustment 95% Insurance 17 202 1.3%33,262 Replacement Reserves 23 280 1.8%46,055 Recommended Unit Mix Management Fee 49 591 3.8%97,227 Unit Type Monthly Rent Square Feet # of Apartment $/SF - Rent Total Operating Expenses 448 5,382 34.6%885,279 1 Bedroom 1,102$ 800 82 1.38$ 1 Bedroom/Den 1,173$ 950 25 1.24$ Net Operating Income 757 9,084 56.9%1,353,590 2 Bedroom 1,383$ 1120 41 1.24$ NOI with TIF 1,474,679$ 3 Bedroom 1,603$ 1350 16 1.19$ Less: Debt Service 164 Loan 547 6,560 42.2%1,078,984 Avg. $/SF - Rent 1.30 Total Debt Service 547 6,560 42.2%1,078,984 Avg. SF/Apt 958 Net Operating Cash Flow 210 2,524 14.8%274,606 GSF/Unit 1,149 Total GSF Unit 189,000 Parking 27,000 Without TIF - WWTP Option With TIF - Housing District Total Building 216,000 Revenue 2,379,506 Return on Cost Required 7.50% Expenses 832,929 Max Development Cost 18,047,865 Floors GSF Floor Plates Park/Amenity GSF Residential / GSF / Unit NOI 1,546,577 GAP Identified (TIF)3,498,135$ 4 54,000 54,000 47 Capitalization Rate 7.18%Net TIF to City 349,814$ 3 54,000 54,000 47 Gross Income Multiplier 8.42 Net TIF Developer 3,148,322$ 2 54,000 54,000 47 Cash on Cash 6.37%TIF Note 26 121,089$ 1 54,000 27,000 27,000 23 Debt Coverage Ratio 1.255 DSCR 1.37 216,000 27,000 189,000 164 Max Development Cost 21,546,000 Net Cash Flow w/ TIF 395,695 GAP Funding Needed - Cash on Cash 9.18% Estimated Tax 225,598 Market Cap 6.50%Annual Tax Amt to City 104,509 Market Value 20,824,459 801.34$ 11.0 1.00$ 0.38$ 39,630.93$ TIF Allocation City Fees 9,632 1,584,376 960.99$ 11.0 0.86$ 0.38$ 47,671.75$ TIF OPTIONS Project Costs 1,913,759$ 1,110.34$ 11.0 0.82 0.37$ 53,334.90$ 32.90 140,637.58$ Denotes Baseline analysis with no assistance With TIF - Redevelopment District Return on Cost Required 7.50%Development Budget affordability component Max Development Cost 19,923,033 Land 2,100,000 9.75%9.72$ 12,767 GAP Identified (TIF)1,772,967$ Professional Fees 1,077,300$ 5.00%4.99$ 6,549 Net TIF to City 177,297$ Finance Costs 430,920$ 2.00%2.00$ 2,620 no affordability component Net TIF Developer 1,595,671$ Construction 17,937,780 83.25%83.05$ 109,050 TIF Note 26 61,372$ Total 21,546,000 100.00%99.75$ 130,986 DSCR 1.37 Net Cash Flow w/ TIF 395,695 WWTP Cash on Cash 9.18%Plant decommission and demolition 150,000$ Estimated Tax 249,038 Annual Tax Amt to City 187,666 Utility Connection Fees $/REC REC Connection Fee 7,147$ 164 1,175,616$ TIF Allocation Access Fee 2,382$ 164 391,817$ City Fees 9,632 960,792 9,529$ 1,567,433$ Project Costs 812,175$ Prepared 8/15/17 River Bend North Darkenwald Corporation Otsego, Minnesota Denotes Redevelopment District option with Affordable Rents PROJECT SUMMARY Competitive Apartments in the Area Denotes option for housing district with 20% Legal Description CIC Number 143 Riverbend North CIC Plat Attachment to Application for Financial Assistance Riverbend North DAC16001 1 August 15, 2017